USD/INR Strengthens Amid Continuous FII Outflows from India.

Indian Rupee Weakens as Foreign Institutional Investors Continue Outflows

The Indian Rupee (INR) slipped on Thursday, breaking a three-day winning streak as foreign institutional investor (FII) outflows persisted. While concerns over the US economy weighed on the US Dollar (USD) and provided some support to the INR, expectations of further interest rate cuts by the Reserve Bank of India (RBI) added downward pressure on the local currency.

Key Factors Driving INR Movement

1. RBI Intervention and Liquidity Boost

   • The Reserve Bank of India (RBI) announced a $21 billion liquidity infusion into the banking system on Wednesday to ease lending conditions and stimulate economic growth.
   • This move may help mitigate some of the INR’s losses but is unlikely to offset sustained FII outflows.

2. Persistent Foreign Institutional Investor (FII) Outflows

   • India’s capital flows have remained negative for the fifth consecutive month, with FIIs pulling funds out of Indian markets.
   • These outflows are contributing to the Rupee’s depreciation against the USD and adding pressure on the local currency.

3. Economic Data & Market Sentiment

   • India’s HSBC Composite PMI eased to 58.8 in February from 60.6 in January, reflecting a slowdown in business activity.
   • The Services PMI also declined to 59, slightly above expectations (57.3) but lower than the previous 61.1 reading.
   • Job creation and charge inflation remained strong, but business sentiment fell to its lowest level since August 2024, according to HSBC Chief India Economist Pranjul Bhandari.

4. Upcoming US Economic Data & Federal Reserve Speeches

   • US Initial Jobless Claims data, set to be released later on Thursday, could influence USD/INR dynamics.
   • Several Federal Reserve officials, including Patrick Harker, Thomas Barkin, and Christopher Waller, are scheduled to speak, potentially impacting USD movement.
   • The highly anticipated US February Nonfarm Payrolls (NFP) report on Friday will be a key event for traders monitoring forex market trends.

Global Trade & US Economic Developments

• Trump Administration’s Trade Adjustments

  • Former President Donald Trump is reportedly considering exempting certain agricultural products from tariffs imposed on Canada and Mexico.
  • Additionally, the White House announced a one-month exemption for automakers from newly imposed tariffs on Mexico and Canada.

• US Employment Data Falls Short of Expectations

  • Private sector employment in the US grew by only 77K in February, significantly lower than the previous revised reading of 186K (from 183K).
  • This figure also missed market expectations of 140K, signaling potential weakness in the US job market.

Conclusion: Will the INR Recover?

The Indian Rupee remains under pressure as capital outflows persist and expectations of RBI rate cuts weigh on sentiment. However, RBI’s liquidity infusion and global market developments could influence the trajectory of USD/INR in the coming days. Traders and investors will closely monitor upcoming US economic data and Federal Reserve signals for further direction in forex markets.